In this month's issue:
Economic Trends That Could Shape 2025
Mark Luschini
There are several positive trends shaping the U.S. economy that are likely to carry well into the new year. They include falling inflation, looser monetary policy, and stout consumer spending. Just like in 2024, their evolution will heavily influence the pace of economic activity in 2025 and whether investors can benefit from another year of rising stock prices.
While the deceleration in inflation is not just a 2024 story (after all, it has been declining for two and a half years since its peak in June 2022), it has inched closer to the Federal Reserve’s (the Fed) target of 2%. Perhaps equally important is that its glide path lower has been consistent enough for monetary officials to shift from an interest rate hiking campaign to one of rate cutting. Some components of the inflation calculation, however, have remained somewhat sticky at a level that warrants caution that the battle to tame it has been won. Indeed, policymakers at the most recent Federal Open Market Committee meeting penciled in an expectation of a 2.5% rate of inflation for 2025, which was higher than the FOMC’s projection last issued in September. Still, unless inflation reaccelerates due to a pickup in demand spurred by fiscal policy or a sudden upturn in consumer or business spending, it is likely that inflation will continue to recede toward a more benign level over the coming quarters.
Year In Review
Guy LeBas
Once again, we are taking the first Investment Perspectives of the new year to reflect on major market themes from the prior year. The level of interest rates has once again been a defining force in 2024, shaping valuations across bonds, equities, and commodities. While this interplay remains foundational, the nuances of rate-driven market dynamics were particularly striking. In particular, the dominance of CTAs (essentially rules-based trading vehicles) in exacerbating natural market trends was on display. As discussed in Janney ISG’s Outlook 2025, we anticipate some continuation of these themes, albeit with narrower trading ranges but more policy risks than 2024’s experience.
In early 2024, the Federal Reserve’s commitment to a data-driven approach amidst higher inflation prints pushed expected rate cuts later and yields higher. By mid-year, a sharp reversal occurred, driven by (ultimately unfounded) fears of a sharp global economic slowdown. Finally, even as the Fed began to cut, renewed fiscal concerns— exacerbated by record Treasury issuance and the election of a unified government—sent long-term yields sharply higher. The net result? A year marked by oscillations rather than a single trend, leaving 10-year Treasuries to close at 4.57%, up from 3.88% at the start of the year. Short-term yields experienced a similar arc, ending the year at 4.24%, unchanged from 2023’s finish. These results were, incidentally, close to our projections released in December 2024 of 4.46% and 4.18% for the 10-year and 2-year note yields, respectively.
A Look Back to Look Ahead
Gregory M. Drahuschak
The typically positive month of December had a loss of 2.50%, which was the ninth worst loss for the month since 1950. Nonetheless, 2024 ended with solid gains across most market measures as the S&P 500 posted rare back-to-back 20%-plus gains (24.23% and 23.31%, respectively, in 2023 and 2024).
Some wise advice suggests that you can’t know where you might be heading unless you know where you have been. The start of a new year offers time to reflect on where we have been through the last 56 years, which in turn offers a good idea of what might be ahead.
Late 1968 came in the aftermath of the assassination of Martin Luther King, Jr. in April, the Vietnam War’s “Tet Offensive,” police confrontations with anti-Vietnam War protesters in Chicago outside the 1968 Democratic National Convention, and presidential candidate Robert Kennedy’s assassination, which led some publications to call 1968 the most turbulent year in modern American history. BUT the S&P 500 ended 1968 at 103.86 with a gain of 7.66%
You can read the full Investment Perspectives here.
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